Today's edition features:
• Ferrum Crescent (LON:FCR)
• N4 Pharma (LON:N4P)
• Fox Marble Holdings (LON:FOX)
"It was quite a first half for global equities! They registered in their best six months performance in nearly a decade. All but four of the 30 major indexes representing the world's highest valued markets have risen this year, a first-half performance unmatched since 2009, according to the Wall Street Journal. The US, for example, saw both the S&P-500 and Dow Jones industrial climb more than 8%, a feat matched only three other times since the turn of the century; the Nasdaq leapt 14% powered by Techs and Biotechs, with both benchmarks climbing over 17%. Not that every sector was a winner; Energy, tumbled more or less tracking the decline in crude oil prices over the period, as US shale producers took advantage of output cuts agreed by OPEC and allies in order to seize worldwide market share. Trading on the last day of June, however, was short of features, becalmed compared with earlier in the week, as the two wider major averages recorded modest gains, while the Nasdaq made a fractional loss. The Arca Steel featured once again with more gains with traders increasingly anticipating measures to control international dumping into the US, while the housing sector also found buyers. Amongst individual stocks, Nike jumped over 10% on strong fourth quarterly sales and news that the Group had struck a direct marketing deal with Amazon. On the macro front, personal income data released by the Commerce Department recorded a climb of 0.4% in May after rising by a downwardly revised 0.3% in April, slightly ahead of consensus expectation, while personal spending inched up by 0.1% in May as expected having risen 0.4% in April. Separately, the University of Michigan also released a report showing that consumer sentiment decreased by less than initially estimated in June, with its index revised to 95.1 from the preliminary reading of 94.5. Asian equity markets ended mixed this morning, however, after struggling to find direction. The Nikkei Stock Average rose some 0.1%, recovering from a near 1% drop at the end of last week, while South Korea's KOSPI moved similarly and Australia's S&P/ASX 200 lost 0.6%. Both the Shanghai Composite and Hang Seng made just fractional moves, despite release of its June Caixin Final Manufacturing PMI rising to 50.4 from 49.6 the previous month. Talk about the ending of nearly a decade of easy money kept the bear circulating across Europe on Friday. Germany's Dax, for example lost 0.73% after being hit by an earnings warning from Bayer, while the CAC-40 slipped 0.56% as France's budget auditor warned the government deficit this year will significantly exceed targets negotiated with the EU. The Continental STOXX 600 accordingly lost 0.3% on Friday, taking the weekly fall to 2.1%, with earlier strength in industrials, telecoms and financials giving way to profit taking amongst oils and healthcare later in the session as basic materials also found more sellers. The FTSE-100 declined 0.51% as the ONS released data showing UK households had suffered their largest squeeze in disposable income for 4 decades during the 9 months to March. Theresa May's government appears to have heard this particular message loud and clear, with weekend reports and media widely suggesting relaxation to austerity must now mean a tilt toward higher taxes given that debt remains so high. There are no significant UK macro data released scheduled for today, although BoE Governor, Mark Carney is due to speak at 09:30hrs BST, followed later by his Chief Economist, Andrew Haldane at 18:30hrs. The EU contributes only Market manufacturing PMI figures for June, while the US offers similar numbers, along with its ISM Prices Paid and Total Vehicle Sales and May Construction Spending numbers. UK corporates due to release earnings or trading updates include just Plastics Capital (PLA.L) and SuperGroup (SGP.L). The second half of 2017 opens in a somewhat nervous mood, with pundits suggesting the possibility of a repeat of the 'taper tantrum' seen back in 2013 as the Fed signalled its own reduction in asset purchases could now be on the cards. First thing this morning, however, Europe is seen taking its hint from the US closing, with the FTSE-100 rising around 20 points in early business."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.51% lower at 7,312.72 whilst the FTSE AIM All-Share index was up 0.11% at 965.98. In continental Europe, the CAC-40 finished down 0.65% at 5,120.68 whilst the DAX finished 0.73% lower at 12,325.12.
Wall Street
In New York on Friday night, the Dow Jones rose 0.29% to 21,349.63, the S&P-500 firmed 0.15% to 2,423.41 and the Nasdaq shed 0.06% to 6,140.42.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.24% to 20,081.67, while the Hang Seng added 0.08% to 25,784.79.
Oil
Headlines
New energy bill cap considered
A price cap on energy bills could be extended to many more households on low incomes, under plans being considered by regulator Ofgem. A limit on the cost of gas and electricity for those on pre-payment meters already saves about four million people £80 a year. This could be extended to others on certain benefits. The proposals come after a much wider cap in the Conservative manifesto was absent from the Queen's Speech. Instead, the government said ministers were "considering the best way" to protect those on the poorest-value tariffs. Business Secretary Greg Clark wrote to Ofgem to challenge the regulator to use its existing powers to reduce bills. The announcement from Ofgem lists a range of proposals covering billing and switching.
Source: BBC News
Company news
Ferrum Crescent (LON:FCR, 0.08p) – Speculative Buy
Ferrum Crescent announced today that it has entered into a legally binding agreement for the sale of its subsidiary, Batavia Ltd, the investment holding company for all the Group's South African assets, including the Moonlight iron ore project. The agreement is with NPSL African Holdings and FCR's BEE partner Ngwenya Capital who together will assume all FCR's responsibilities of the iron ore assets, the Group's South African Subsidiary and all associated undertakings, including fiscal and environmental responsibilities and costs, for a nominal consideration of A$1,000. The disposal of Batavia was considered to be more cost effective and expeditious means of withdrawing from the Moonlight project rather than winding up the Group subsidiaries and relinquishment of the mining and prospecting rights to the South African Department of Mineral Resources with the concomitant actions including environmental rehabilitation requirements. Unfortunately, the Group was unable to reach an agreement with a third party following a period of negotiations given the significant headwinds that face the iron ore market and the current investment climate in South Africa. Meanwhile, FCR continues to advance its Toral lead-zinc project in Spain with current drill campaign on going and designed to test for shallow lead-zinc mineralisation. Currently, Toral has a combined (Indicated & Inferred) resource of 8.7Mt with a weighted average grade of 10.7% (Pb + Zn).
Our View: The above announcement marks the end of FCR's involvement in the Moonlight project. The unwinding of Moonlight is not surprising given the current depressed iron ore market conditions, significant capital investment required to bring the project into production and current investment climate in South Africa. The Group can now focus its efforts and capital on the Toral lead-zinc project and the current drill programme underway to test its hypothesis that known mineralisation at depth is linked to shallow mineralised features. If proven correct, these shallow mineralised features could potentially add to the current resource base. We note that zinc prices continue to be well supported on the back of dwindling LME inventories. We look forward to the drill results from the current programme at Toral. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Ferrum Crescent plc
N4 Pharma (LON:N4P, 8.38p) – Speculative Buy
N4 Pharma, the specialist pharmaceutical company which reformulates existing drugs and vaccines to improve their performance, on Friday announced the latest research results for its nuvec nanoparticles which is currently developing as a delivery system for DNA and mRNA vaccines and therapeutics. The study (funded via a biomedical Catalyst grant) was conducted to assess the systemic tolerability of the nuvec Silica nanoparticles injected as single dose to animals. The results indicated that the nanoparticles did not cause any systemic toxicity and all organs examined microscopically were normal, including at the highest dose, which is likely to be many times in excess of the concentrations that might be administered to humans. Whilst there was some mild to moderate inflammation observed at the sites of injection, these were non-specific and generally indicative of local inflammation, and were similar to that which would be expected following implantation of a medical device or as a result of injecting a vaccine and would almost certainly resolve over time, according to the board certified pathologist used in the study. The study therefore concluded that, "a single subcutaneous administration of the nuvec nanoparticles to rats did not cause any toxicological effects considered likely to be of long term concern". ApconiX Limited, a specialist pre-clinical toxicology consultancy, which the Company partners in these studies, have approved this as an accurate reflection of the results observed. Beside this, the Company have already demonstrated its transfection capability of nuvec particles compared to standard industry in vitro techniques (lipofectamine). Further studies in an in vivo environment will also be performed with updates announced in due course.
Our View: N4 Pharma continues to make good progress on its nuvec vaccine delivery system. While further major studies need to be completed before it can validate and demonstrate the suitability of nuvec system to its potential commercial partners, the study results of no systemic toxicity is an important and positive step forward. Beside vaccines reformulation, N4 Pharma's another division is focused on developing reformulated generics of commercialised drugs. Its commercial strategy is to advance a pipeline of re-formulated drugs through clinical proof-of-concept, before partnering with larger pharmaceutical groups in order for them to be progressed through to New Drug Applications ('NDA') and subsequent commercialisation phases in exchange for upfront and milestone payments plus royalties associated with the licence. N4 Pharma intends to focus on such opportunities that they believe have the potential to achieve gross annual sales of at least £300m. Under terms of its agreement, the Company would then be required to pay a proportion of any such royalties received to Opal IP, from whom exclusive global rights to a range of novel patents was acquired back in 2016. The Board considers N4 Pharma's reformulation approach should take approximately three years to obtain regulatory approval with a cost typically in the range of £3m to £5m, as opposed to the traditional process for new drugs that take an average of ten years to complete at a cost of up to US$1bn. As such, its cost and risk profile remains significantly lower than the industry norm and first revenues could be seen as early as 2020. N4 Pharma's most advanced reformulation for sildenafil, where it seeks to improve the speed at which the drug takes effect whilst also extending its duration of action. With the in-vitro reformulation work on the molecule just about complete, the next phase is to move into clinical trials with healthy volunteers to determine the precise level of the drug in blood plasma to then take those results to the relevant regulatory authorities, such as the Food and Drug Administration ('FDA') in the USA and the Medicines and Healthcare Regulatory Agency ('MHRA') in the UK. The Group is presently in the process of discussing the parameters for these trials as well as working through all the regulatory requirements and necessary approvals before they can formally commence and will make further announcements in due course as and when the timing of commencement of the trials becomes clearer. This will be funded from the net proceeds from May Admission with any subsequent shortfall likely to be found through the issuance of new equity or other related instruments. At this stage, it would be expected to seek pre-IND acceptance of the proposed programme from the FDA. Having adopted a relatively low-risk business model that also offers a rapid route to first revenues, N4 Pharma's valuation still appears to ignore the opportunity its lead candidate presents. Even after awarding a lowly 20% probability of success and assuming a call for an additional £2m raise to complete clinical studies before attracting a suitable partner, a net-present value of £10m is still a significant premium to Friday's closing price. Beaufort reiterate its Speculative Buy rating on the Share.
Beaufort Securities acts as corporate broker to N4 Pharma Plc
Fox Marble Holdings (LON:FOX, 9.12p) – Hold
The AIM-listed group focused on marble quarrying and finishing in Kosovo and the Balkans region on Friday provided the market with an operational and financial update in anticipation of its Annual General Meeting. Operationally, Fox reported good progress with numerous order and prospective demand from large customers along with news that the factory's resin and polishing lines the anticipated come on stream in July. Rather disappointingly, however, a report from Fox's agent, Pisani Holdings Ltd, confirmed the appointment of Administrators. Fox Marble has removed all consignment stock and stock for which payment had not yet been received from Pisani storage. It is also assessing the situation and the impact that this may have on the Company's order book projects but are anticipating that its marbles will continue to be installed within the existing specified projects. The Group has net unprovided receivables due from Pisani PLC of €68k. As a result of potential project delays arising, the Board advised shareholders of a reduction in its expected order book value for 2017 to €3.6 million from the €4.4m suggested with its June 2016 Preliminaries. Fox Marble also confirmed its had just completed the issue of a convertible loan note for the sum of £440,000 which terms are the same as the series 1 loan note issued at the time of IPO. The interest payable is the same at 8% and the note is due for conversion or repayment on 31st July 2019.
Our View: That's a disappointment, although clearly something that is entirely beyond Fox's control. Nevertheless, coming just as investors were believing the Group's extended run of disappointments had run its course, this serves as a reminder that painful hazards can also be found within the distribution chain. More positively, the statement that accompanied the group's 2016 Preliminaries and Friday's AGM, demonstrated that management is filling out its network with what should become long-term and growing procurement agreements. In turn these will hopefully ensure future dependence on individual counterparts will not be significant in overall Group terms. Indeed, with discussions currently underway, H2'2017 holds potential for a number of new offtake, distribution and sales agreements with customers across the UK, Europe, US and Asia, so at least the opportunity is there to rapidly rebuild the order book value back up to where it was. Beyond this, however, Fox will still have to demonstrate that it has sufficient momentum to eventually fulfil its ambition of becoming a default supplier of significant scale. Then investors will be able to cash-in on the Group's quite exceptionally low capex, largely fixed operating costs and fully integrated production, processing and marketing business opportunity. Expanded revenues should then trickle almost straight down to the bottom line which, as management has already suggested, will quickly be returned to patient shareholders in the form of dividends. Back to the present, however, that there must be a chance the existing Pisani projects are not fulfilled and other pipeline contracts take longer to complete than expected. This will force investor eyes back on the Group's balance sheet. The CLN issue suggests management might be thinking the same, given that its current cash position of less than €1m could be entirely burnt between now and the year-end. Beaufort's targeted breakeven for 2018E now also looks in doubt. Given that the market might therefore anticipate Fox Marble embarking on yet another discounted equity placement in the coming months, Beaufort has taken the cautionary step of downgrading its recommendation back to 'Hold' once again, whilst awaiting further developments.